No amount of money can "absolve" News International of the "grotesque" hacking of the phone of murdered teenager Milly Dowler, Nick Clegg said on Tuesday.

The Liberal Democrat leader and deputy prime minister condemned the actions of the now defunct News of the World as its parent group, News International, confirmed it was in "advanced negotiations" with the parents of the 13-year-old for a £3m settlement.

The deal involves a £1m donation from Rupert Murdoch to a charity of the Dowlers' choice and a separate £2m payout covering compensation and legal costs to the family.

Clegg said: "It is not for me to decide what money News International offer the Dowlers. I think it is very, very important we now give the Dowler family the time and space they need to rebuild their lives and move on.

"I have met them and they are a lovely, strong, everyday family who lost their daughter and were dealing with that terrible tragedy and even then these journalists – it's just grotesque – were invading their privacy.

"In a sense I think, and I am sure the Dowlers feel the same, that no amount of money can absolve people for what they did."

"I think the reason why people were so outraged by the invasion of the privacy of the Dowler family is that they weren't celebrities, they weren't politicians, they hadn't asked to be put on the front page of the nation's newspapers," Robertson said.

"In a sense I think, and I am sure the Dowlers feel the same, that no amount of money can absolve people for what they did."

The Hacked Off campaign, which has highlighted complaints of media eavesdropping on private calls, said in a statement it was "pleased to learn that the Dowler family have reached a settlement with News Corporation".

"The family have been through a terrible ordeal, made worse by the revelations of phone hacking of the News of the World, and this is a welcome signal of remorse from News Corporation," it said.

"We also wait to hear about the nature of the settlement with the other alleged 4,000 victims of phone hacking identified by Operation Weeting, most of whom are yet to discover that they were targeted."

News International confirmed late on Tuesday that it was negotiating a compensation settlement with the Dowler family.

"News International confirms it is in advanced negotiations with the Dowler family regarding their compensation settlement," a spokeswoman said. "No final agreement has yet been reached, but we hope to conclude the discussions as quickly as possible."

• To contact the MediaGuardian news desk email editor@mediaguardian.co.uk or phone 020 3353 3857. For all other inquiries please call the main Guardian switchboard on 020 3353 2000. If you are writing a comment for publication, please mark clearly "for publication".

• To get the latest media news to your desktop or mobile, follow MediaGuardian on Twitter and Facebook.